New York ‘is cheaper than Birmingham’ for business start-ups

It is cheaper to start up a new business in New York than Birmingham, a major study has claimed.

A Centre for Cities survey – Small Business Outlook 2013 – says it is more expensive to acquire office space in Birmingham than in the world’s number one business district of Manhattan.

The survey uses data from a London School of Economics study – Office Space Supply Restrictions in Britain 2008 – which shows that although construction costs in Birmingham are roughly half of those in Manhattan, occupation costs are 44 per cent higher.

The LSE study suggests that land use restrictions in cities, a green belt ‘set in aspic’ and the difficulty of obtaining planning permission are driving up the cost of office space in Birmingham, making it more difficult for small businesses to get off the ground and survive.

Although the LSE study was based on research conducted in 2005, there is no evidence to suggest that the findings have changed significantly. The report found: “Birmingham was the next most expensive European city after Paris, and Glasgow, Edinburgh and Manchester were all more expensive than Manhattan.

“Office space cost twice as much in any of those smaller and not very prosperous British cities as it did in San Francisco – a city which not only is highly prosperous and has some of the tightest regulatory constraints on housing in the US but also has topographical constraints on land supply.

“Office space in Birmingham cost 124 per cent more than in fast growing, twice as big and land strapped Singapore.”

Small and medium sized businesses in Birmingham are being hit by a ‘triple whammy’ of a poorly skilled workforce, sky-high rents and some of the highest rateable values in the country, according to Centre for Cities.

Birmingham has the ninth highest rateable values of any UK city with average costs three times as high as Leicester. The cost of living in the West Midlands is slightly above the UK average.

The Centre for Cities survey shows how SMEs in Birmingham have been slow to recover from recession and are struggling to recruit suitably skilled employees. Birmingham has the highest proportion of any UK city of working age population without qualifications, at 16 per cent, while the West Midlands has one of the highest proportions of managers without academic qualifications.

Almost 40 per cent of SMEs in Birmingham with 10 or more employees contracted between 2008-2011, however 44 per cent said they had taken on additional staff during that period.

Almost 20 per cent of SMEs in Birmingham report a skills gap – the difference between the skills needed on the job and those possessed by employees.

Centre for Cities makes the point that “cities with a more highly skilled workforce tend to be more entrepreneurial and to have more SMEs growing than shrinking”. A shortage of workers with higher skills levels impact on the ability of smaller businesses to expand.

But SMEs in Birmingham are well placed to take advantage of the digital revolution, with super-fast broadband reaching 76 per cent of post codes across the city.

The Centre for Cities report makes the following recommendations:

National Government should build on City Deals and Lord Heseltine’s No Stone Unturned review to devolve more funding and powers around skills, transport, housing and business support.

Cities and LEPs should focus on improving the local business environment.

LEPs should work to reduce diversify SMEs’ customer base and reduce dependency on local markets.